Will China Save Brazil?

The worsening political crisis in Brazil will affect the economies across Latin America, leading, most likely, to a decline next year. The region’s expected recovery of 0.8% could be delayed, according to the IMF.

This was stated by the director of Western Hemisphere Department of the IMF, Alejandro Werner, in an interview with EFE. He noted that the regional rebound can be expected to be postponed for this reason.

“Our latest projections for the region, presented at the annual meeting in Lima in October, showed negative growth in 2015 (0.3%) and there would be some recovery in 2016,” said Werner.

For the coming year a slight recovery of 0.8% was expected.

“Today, in the second week of December, the information we have received from Lima has been generally negative, the political crisis in Brazil has intensified, and has delayed the expected recovery…So, most likely, the forecasts for 2016 in the region that will present in late January have a downward revision,” the official said.

Hope in China?

However, in order to overcome this problem, some countries in the region could be directed to the modernization of agriculture and services, with particular emphasis on knowledge-intensive services and technology.

“Latin America needs to invest in innovation, quality and relevance of skills and fill gaps in infrastructure to benefit from global value chains,” advises a new Economic Perspectives document for 2016. The study was prepared and presented in Cartagena (Colombia) by the Development Bank of Latin America (CAF), the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and the Development Center of the Organization for Economic Cooperation and Development Economic (OECD).

The report is a “contribution of elements for political discussion on strengthening the ties between China and Latin America in order to build a partnership for development that is mutually beneficial.”

Innovation, improvement and survival

Among its main points is that the capital of innovation in Latin America is much lower than the OECD and “this requires national investment efforts to attract innovation, but also foreign investment.”

Improving infrastructure and logistics are also key “to help the economies of Latin America to relocate and better integrate into global value chains.”

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The agencies responsible for the study felt that the performance of China is new and at the same time central to Latin American development to help during Brazil’s down turn, and will generate both challenges and an opportunity factor.

They argued that trade between China and the region has experienced unprecedented growth over the last 15 years, having multiplied 22 times during this period.

At present, “the lower Chinese demand for raw materials with falling prices is affecting Brazilian and other Latin American commodity exporters, which show different patterns of slowdown that depend in part on the nature of its bilateral relations with China.”

This reveals structural weaknesses of commodity-based growth. It is therefore urgent that policy action counteract this recession.

Issues such as “greater productivity growth, economic diversification and more effective skills, innovation and social policies, should be part of core interventions for long-term development, in order to achieve inclusive growth.”

Hence, how Latin American governments continue to deal with China will play a key role in this development path, especially during the troubled economic and political future engulfing the South American giant.